Polity size and the congested budget: evidence from italian municipalities

Once in office, politicians propose policies aimed at maintaining the support of their constituencies. This form of political activism increases with polity size – i.e., the number of politicians in government – but it may clash with capacity constraints, leading to a congestion effect whereby politicians’ plans are not enacted in practice. With novel data on Italian municipalities, we estimate the causal effect of polity size on a battery of planned and actual budget outcomes. We leverage a reform that introduced a new temporary population threshold where polity size changed discontinuously and estimate local treatment effects with a difference-indiscontinuities design. We document a congestion effect. Municipalities with larger polities have a larger planned budget which does not translate into a larger actual budget. The congestion effect decreases when bureaucratic capacity is high, proving how administrative capacity can be a binding constraint for politicians’ behavior.